Abstract

The purpose of this study was to investigate the effects of military expenditure on the economics growth of Cameroon. As specific objectives the study had to investigate the effect of human capital and physical capital on the economic growth of Cameroon. For this to be accomplished relevant literature was reviewed and necessary theories stated. The area of study is Cameroon and the data used are mainly secondary data of GDP population and military expenditure, human capital and physical capital gotten from World Development Indicators (WDI). The method of analysis used is the ordinary least square method done through the SPSS software. The results showed that military expenditure has a negative effect on the economic growth of Cameroon. Human Capital has a positive effect on the economic growth of Cameroon. Physical capital has a positive effect on the economic growth of Cameroon. And for any policy recommendation intending to improve the economic growth the government is advised to put a keen eye on the level of finances it spends on the military.

CHAPTER ONE

INTRODUCTION

 1.1 Background of the Study

Most of the least developed countries (LDCs) and developing countries (DCs) have suffered military or civil conflicts since 1990s. These conflicts sometimes take place within states rather than between them, but it also causes equal or more human suffering, economic dislocation, and wasted development opportunities. As a result, a significant portion of national budgets are incurred on military spending mostly on the basis of threat perception of political masters of nation states. The justification of much of the growth of military expenditure is usually explained in terms of the need to maintain national security, law and order, internal disturbances, etc. As per SIPRI estimates of 2013, global military expenditure in 2013 was US $1747 billion, around 2.4 per cent of world GDP. At times, it seems illogical diverting scarce resources particularly in LDCs and DCs towards military expenditure at the cost of unattended basic human needs. (Trochim, 2006)

Ever increasing size of military expenditure as proportion of national budgets and vested interested of arms industry have led to renewed debate over whether the increase of the military expenditure enhances or deteriorates economic growth and welfare. This phenomenon attracted the attention of researchers to examine short term and long term implication of military expenses on the economy. Theoretically, there is no consensus about the impact of military expenditure on economic growth and causal linkages have also not been established explicitly. One of the reasons is the heterogeneity in the approaches of estimation and variation in sample sizes of data used in drawing evidences of linkages between military expenditure and economic growth. Mostly empirical results are mixed and hence it is difficult to argue convincingly about the extent and direction of relationship. In economics, military expenditure and economic growth linkages have been examined through a number of channels. Many researchers have argued that increase in military expenditure can have positive effects on an economy through an expansion of aggregate demand in Keynesian framework. Increase in military expenditures can boost economic growth of an economy through the Keynesian multiplier mechanism especially in the period of mass unemployment. Therefore, it is important for the government to manage and to increase aggregate demand. On the other side, many researchers have argued that military expenditure affect negatively through a crowding out of investment as theorized by classical macroeconomists. (Donnelly, 2009)

Today, the main concern about the issue of military expenditures is that, the world is continuing to devote large amounts on the military sector. Hirnissa and Bacharom (2009) claimed that higher military expenditure tend to be associated with higher economic growth and also as protection to maintain the peace of the world. However, the public belief on this issue is that, expenditures will lead to war. In addition, higher taxation is needed to finance higher military expenditures, thus, reducing economic growth in the long run. This difference in the argument has led to different opinions on whether military expenditure has positive or negative effects on economic growth. Hassa (2003) emphasized four arguments about the effect channels. However, the causal relationship between these variables is also important to reach a general conclusion about the structure of countries as well as the effect channels.

In the early 1970s, Emil Benoit shocked development economists by presenting positive cross-country correlations between military spending rates and economic growth rates in LDCs. This existence of positive effects of military spending on economic growth as conjectured by Beniot still cannot be ruled out. However, the recent econometric evidence points to the conclusion that these positive effects, if they exist, are small relative to the negative effects and that, overall, military expenditure has a weak but adverse impact on economic growth in developing countries. Some studies uncover evidence of positive effects of military expenditure on economic growth through human capital formation and technological spin-off effects. While models that allow military expenditure to affect growth through multiple channels find that, military spending may stimulate growth through some channels, it retards it through others and the net effect is negative. The most important negative effect is that military spending reduces national saving rates, thereby reducing rates of capital accumulation.

Developing countries have enough problems without either the waste of resources constituted by military expenditure, or the social and economic destruction brought about by warfare. One of the strongest empirical influences on military expenditure reflect either neighbourhood arms races or the patronage demands of potentially powerful military establishments. Both of these problems are potentially addressable. One of the other major influences on military expenditure in developing countries is internal rebellion. Where there are civil wars (like in the case of Cameroon now), military spending is greatly elevated. Further, there is evidence that governments set their defence expenditure at levels designed to deter such rebellions.

While the threat of international war is clearly one concern that might motivate military spending, for most developing country governments, internal rebellion is a far more likely threat than international war. Currently, civil wars are around ten times as common as international wars. Thus, military expenditure may often be motivated by the desire to defend the government from the threat of rebellion. Collier and Hoeffler, (2006) developed a model of the risk of civil war and used this model to construct a predicted risk for each country and for each time period. They found that the predicted risk of civil war is significant in explaining military expenditure. Governments indeed anticipate the threat of rebellion and raise military expenditure in an attempt to reduce risk. Considerably, a government of a country with say a 30% risk of civil war during the coming five years would raise its spending by around 1.2% of GDP relative to an otherwise identical country without such risk

The above motivations for military expenditure have either been to fight a war or to deter it. However, these are not the only motivations for military spending. As with other forms of public expenditure, military expenditure has beneficiaries. In developed countries, these beneficiaries are largely industrial companies that produce military hardware. Developing countries largely import such hardware and so the domestic beneficiaries are predominantly military employees. We might therefore expect that where military employees have a greater influence over government decisions, the government will be persuaded to choose a higher level of military expenditure. This is a natural tendency because contrarily, if professors were in charge of government, they would probably increase expenditures upon universities. Civil war is an important impediment to development both directly and through its effect on military expenditure. It is therefore important to determine what actions are important in conflict prevention. While this is usually seen as a purely political matter, empirically the major determinants of the risk of civil war are often economic. This problem is discussed in detail in the next section and subsequent chapters

1.2 Statement of the Problem

Given the interconnectedness of global economy, financial problems in the United States and the Euro-Zone quickly spread to other countries, which have now turned into a global economic crisis due to interlinkages of financial and real sectors. This crisis brought many structural flaws and policy constraints to forefront that hinders more investment and faster productivity growth in the world’s developed and major emerging economies. For instance, China needs to rebalance its economy from rapid investment-intensive ‘catch-up’ growth towards more a consumption and services-driven economy. India, Brazil, and Mexico face major structural challenges to unlock labour and product markets and create a more efficient resource allocation. Undoubtedly, globalization has benefitted countries over recent decades through trade and investment flows but unregulated financial sector and dissolute pursuit of rent seekers has depressed investment flows in productive sectors and reduced productivity growth, making faster path of global growth more

There are many direct and indirect links between military expenditure, the arms trade, violent conflict and the reduction of available resources for social and economic development. Governments that spend excessive financial, techno logical and human resources on their militaries divert resources from economic, social and environmental programs.

The military industrial complex composed of a state’s armed forces, the government, suppliers of weapon systems and services and academic institutions that conduct research on weapon systems and designs- absorbs vast amounts of funding that could otherwise be spent on human security, including the achievements of The Millennium Development Goals. Furthermore, funds reserved for development initiatives are increasingly spent on emergency relief and rehabilitation operations to clean up after violent conflict.

Military investments are underpinned by a belief that state’s security can be guaranteed by threat of violence. It is an investment in war and conflict. And while governments use the language of security and protection to justify their excessive investment in military hardware and personnel. It is usually civilians who pay the highest price with their lives, livelihood and rights when states go to war. Given the numerous crisis facing the planet- economic, environmental, food, water, health, energy- it is imperative to shift money wasted on excessive military spending to human needs and rights. These challenges militarism by calling on governments to stop spending disproportionate financial, technological and human resources on militaries and demands governments to invest in peace

Above all, weapons are tools of violence and repression by those use them and tools of financial gain to those who make and sell them. The international arms trade is a booming industry and the international systems that were created to uphold international law and secure human rights have been subordinated to the economic and political interest of governments and corporations. While many states promote themselves as advocates for international peace, justice and security and claim to promote international disarmament, the same states are often leaders in the international arms trade which contributes to fuelling conflicts, human rights violations and disrupting peace processes.

While military expenditures continue to be excessive, investment in conflict resolutions, peace building and development lags far behind. Since the end of the cold war, militarism has been growing in response to an increasingly unstable world, propelling the world even further into tension and war. Armed conflicts and the constant threat of war and terrorism have become both the cause of and response to this growing military expenditure. War and the threat of war destroy lives, infrastructure and well-being creating a culture of fear, violence and instability. This impedes development by upsetting social programmes, education, transportation, business and tourism which prevents economic stability, mental well- being and sustainable livelihood. The manufacture and use of weapons also prevent sustainable ecological development and preservation, creating unequal access to resources and further impeding poverty reduction initiatives (like in the case of Cameroon right now).

The continued investment in militarism does not make the world safer. Weapons cannot address the main threats people all over the world are facing today such as natural disasters, increase food prices, lack of adequate health care, education, and a clean environment. Yet these threats are aggravating arms races and weapons development. Stockholm International Peace Research Institution (SIPRI) has warned that growing competition for natural resources may lead to increased military spending as a means of protecting resources from internal or external threats while resource revenues are often a source of funding for arms purchases.

1.3 Research Question

1.3.1 Main Research Question

Does military expenditure contribute significantly to the economic growth of Cameroon?

1.3.2 Specific Research Question

What is the relationship that military expenditures have on economic growth of Cameroon?

Is there any bidirectional relationship between military expenditures and economic growth?